Smoke shop operator Michael Butler has been found guilty of defrauding the Municipality of Anchorage out of more than $1 million in cigarette taxes, according to the Alaska U.S. Attorney's Office.
Jurors found Butler guilty on charges of mail fraud, conspiracy to commit money laundering, and conspiracy to make false statements about the distribution of cigarettes.
Butler was formally charged on July 18, 2013 along with seven other defendants: Kyong Hee Kim, Sun Sims, Kimberly Sims, Jae Ho Lee, Jae Gak Lee, Jerry Lee and Insook Baik. All of the co-defendants pleaded guilty prior to Butler's conviction except Baik, who was acquitted at trial.
Assistant U.S. attorney Stephan Collins declined to comment on the single acquittal.
"I respect the jurors' decision," Collins said.
The federal prosecutor said the convicted individuals would be sentenced early next year.
According to court records, Butler and business partner Sun Sims owned and managed Up In Smoke in Anchorage, as well as Golden Eagle Tobacco and Longmere Lake Grocery and Liquor on the Kenai Peninsula.
Owning two businesses on the Peninsula allowed Butler and Sims to buy tax-exempt cigarettes from tobacco wholesale distributors in Anchorage. They were allowed to do so "only if those cigarettes were transported outside of the (Municipality of Anchorage) and offered for sale at those two stores," federal prosecutors said back in September, when Sims pleaded guilty.
The owners used the two other stores' accounts with Anchorage distributors to purchase tax-free tobacco between 2009 and October 2012. They avoided paying the taxes and increased their profits, according to court records.
Collins said it is estimated that over the course of the scheme "at least $1.3 million in cigarette tax was evaded." Sims agreed to forfeit more than $1.2 million and 500 1-ounce silver coins as part of her plea deal.
For a fee, Sims and Butler would also sell the tax-free cigarettes to the co-defendants, who operated other retail stores around Anchorage.
The Alaska U.S. Attorney's Office has not prosecuted any other cigarette tax cases, said Collins.
Michael Mullane, principal administrative officer with the municipality's finance department, said the city has made a claim for restitution and other penalties totaling $3.9 million. That sum includes the evaded tax money, reimbursement for labor and investigative costs and interest on the unpaid taxes.
The taxes are technically late, he said.
"I've been here 25 years and we've never dealt with a tax evasion incident of this size or nature," Mullane said. "We've pursued sales tax thefts related to rental vehicle businesses, but nothing this size."
The municipality tightened its tobacco tax law in the wake of scheme, toughening penalties for breaking the rules. The new tax code, which went into effect Jan. 1, "closed the environment that these defendants were taking advantage of.
"It should protect the city from similar schemes," Mullane said.